Percentages vs. Net Numbers – Biz Lessons from the ICU, Part 4

Since many are setting goals for 2019 and trying to make them “measurable”, I felt like it would be a good time to pass along a ‘biz lesson from the ICU’ that has to do with a vital concept about numbers.

The lesson in a nutshell: Don’t just think in terms of net numbers. You need to think in terms of percentages as well.

Sometimes net numbers and percentages carry a similar weight in your mind, but are very different in their impact on your business. You need to analyze choices not only as net numbers, but also as the percentages they actually represent. What does that mean? Here is an example from the hospital:

A few weeks ago, my son had transitioned from continuous tube feedings into his small intestine to continuous tube feedings into his stomach. He hadn’t had feedings into his stomach for over 2 months. After about 5 days, they wanted to start transitioning from continuous feedings to “bolus” feedings. Instead of a continuous drip of food, bolus feedings are like sitting down and having a meal, just like you and I would. With his discharge home just a few weeks away, this transition was incredibly important. It would mean he didn’t have to be connected to the feeding pump at all times.

When they started to make that transition, the nurse told me they were going to go from continuous feeding at 38 mL/hour to a 2-hour feeding of 57 mL/hour. Before his hospitalization, Gray had already been getting bolus tube feedings at home at a rate of over 100 mL/hour.

Then I had an interesting series of thoughts.

At first, I was upset about how 57ml/hour was still significantly slower of a feeding than he used to get at home. But from what I know about the psychology of pricing, I then recognized that I was experiencing something called “anchoring”. Even though his situation was very different from before, I was still being influenced by the ‘old’ numbers we were using with his feedings at home.

Recognizing this (because I’ve been screwed in the past by not thinking in terms of percentages), I ran the numbers in my head. After a bit of mental math, I realized they were suggesting a 50% increase from what his little stomach was used to! I warned the nurse that I thought it was too big of an initial percentage increase, but she assured me that this was what the doctors prescribed and was standard.

Sure enough, it was too much for him. He ended up throwing up and having an unnecessarily tough few hours. They had to pause his feedings and start over from scratch.

How does this relate to your practice?

At first glance, the net numbers didn’t seem hugely different or too high. However, the percentage change told a different story. And though the above was an example of a big percentage increase, it’s also important to realize that it doesn’t always take a big percentage change to make huge differences to your bottom line. In fact, the difference between what would be considered “bad” profit margins and “great” profit margins for a brick-and-mortar business is only about 15%.

If your practice is operating at 10% profit margins, many business coaches like myself would be quite concerned. But if you’re pulling off 25% profit margins (especially in a larger business), you’re viewed as rockstar.

A quick related lesson: Be intelligently focused on overhead. Incorporate this idea of percentages along with a focus on likely return on investment (ROI).

What do I mean by that?

A lot of business owners freak out about any expense that’s over $100 or $1000 but they don’t think twice about an expense that’s $20/month. Don’t let net numbers freak you out before you’ve analyzed how much the investment is likely to earn you in the long run. There are a lot of services, software, coaching, equipment, etc. out there that are quite “expensive” but will pay you back many times over. They are more than deserving of the initial investment. There are also plenty of $10/month expenses that are a complete waste of money because they will not provide adequate ROI.

A few examples:

If a $25,000 laser is likely to earn you $50,000 per year, would you invest the money and time in setting up that revenue stream?

If a $1000 course is gonna give you the information and tools to create a business or revenue stream that easily generates an additional $1000 per week for you, is that a smart investment? That course is worth far more than the $1000 you’d pay for it.

So as you’re setting goals and considering expenses, keep percentages in mind along with those good ol’ net numbers. Consider likely ROI before saying yes or no to any expense.

Want a lot more practical advice like this? I have just opened enrollment in the Cash-Based Practice Freedom e-course. This course guides you through creating a customized roadmap for your dream cash-based practice. You get access to lists of resources you’ll need to use to set up a new practice, a private Facebook group with other like-minded practice owners, and personalized guidance in weekly Q&A calls. You can learn more about the e-course here.

Until next time,

Jarod

PS. If you’d like to checkout the latest update on my kids, you can do so here.

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